Financial markets, although nervous, started to discount improved macro-economic prospects after a few weeks of bearish sentiment towards a possible prolonged global recession with ever increasing interest rates.
The steady and surely decrease in the world price for oil and improved exports of grain from the Ukraine also brought some optimism that the worst of the current equity price downturn may be over.
Not only does the rand exchange rate continue to appreciate, but higher prices for gold and the platinum group of metals also indicate that South Africa’s financial market have the potential to turn around into a bullish movement in weeks to come.
The JSE improved by 1.3 percent during July, and the rand exchange rate improved 42 cents against the US dollar to R16.68. The turn-around in international oil prices during the last two weeks, with the Brent oil price that trades far less than $100 ($94 or R1557) on August 5 also increases optimism.
Given the appreciation of the rand by more than 40c, since the previous fuel price announcement, it is now possible that consumers may pay more than 300c less at the beginning of September.
This after the Minister of Energy affairs already cut the petrol price by 132c per litre at the beginning of August. The expected sharp drop in fuel prices may lead to the Monetary Policy Committee not adjusted interest rates higher, or less than expected, during its next meeting in September.
On the JSE the all share index ended 802 points (1.2 percent ) higher on Friday.
For the week index improved by 2.2 percent as resources improved strongly. The resources 10 index gained 3.7 percent during last week.
Financials, due to the stronger rand and good expectations for the sector this year, had increased by 1.88 percent on Friday, and is 15.6 percent higher from the beginning of the year.
On the capital markets rates improved strongly last week. The 10-year bond yield had increased by 2.2 percent and as the rand is expected to move stronger over the next few weeks should gain more.
In the US, the non-farm payrolls that were released last Friday, dominated movements in equity prices and the dollar. Non-Farm payrolls (new jobs) had increased by a massive 528 000 during July and more than double the 25 000 that was expected. This movement, however, may lead to uncertainty on US interest rates in months to come.
One the one side it indicates that the US economy is still strong with low levels of unemployment and that the current recession is only technical.
In this scenario, if US inflation does not start to subside the US Federal Reserve will continue to increase rates, if, due to lower fuel and food prices in months to come, US inflation starts to subside no further FED hikes or less aggressive increases becomes a strong possibility.
This will boost financial markets to continue to recover.
This coming week the release of South Africa’s mining and manufacturing production data for June on Thursday will be of importance.
On global markets, the release of various developed market economies inflation rates for July will set the tone for movements in equity prices, bond rates and the rand exchange rate.
The US inflation rate will draw the most attention. It is expected that the increase in US CPI rate came down marginally from 9.1 percent to 8.9 percent. Investors will also look at US crude oil reserve data that will be published on Thursday. On Friday the UK will announce its gross domestic product growth rate for quarter two 2022. It is expected that the Great Britain economy contracted by -0.2 percent over the first quarter but on a year-to-year number still had grown by 2.8 percent.
Chris Harmse is an economist at CH Economics and lecturer at the School of Commerce at Stadio University.
BUSINESS REPORT